Maintaining high and sustainable economic growth rates with all round adequacy of economic indicators has proven to be a difficult, or rather, impossible task for economies all over the globe. It has been observed that an economy may do well on the key economic indicators like the nominal GDP but it will have a number of economic indicators letting the nominal GDP down.
Most countries are struggling with issues like unemployment, poor balance of payments, social imbalance, etc. For instance, an economy may be doing well in nominal GDP terms but it may be faced with enormous problems like high inflationary rates which threaten the sustainability of economic status. The United States is not an exception to this. Despite its enviable performance, the United States faces seemingly insurmountable problems that threaten its future economic status. This paper looks into the current economic status of the U.S. and discusses the most contentious issues of the economy in greater depth.
The U.S. has enjoyed admirable publicity all over the world as the world’s largest economy. This is, mainly, due to its staggering nominal GDP which is normally in the tunes of tens of trillions of U.S. dollars. The U.S. also has an impressive purchasing power that has seen attractive figures of the GDP on the same terms. The economy has also, for decades, maintained impressive levels of per capita output which has also been a key indicator of its enviable economic performance. However, the economy also has its dark side. It is characterized by very high levels of debt that form a large percentage of its GDP every year. Of more concern is the fact that the levels of debt are increasing annually at a rate of a couple of trillions (Amadeo, 2010, p. 1).
Despite the impressive economic profile that the United States economy has historically held, it is now experiencing enormous problems as the economy has been plunged to more debt, year after year. The government is thus in a fix since most of the economic remedies it can use to reverse, or at best, improve the situation are technically inappropriate. The government therefore will not achieve much by overspending or even under taxing.
Opinions held by a good number of the shrewdest economists in the United States are that the government should try the simplification of its related systems. These include the financial systems, healthcare, taxation system, and the retirement system. The stated systems are currently the ones threatening to bring the economy of the United States to its knees and thus an intervention in the same is inevitable if any progress is to be made.
Since June, the indicators of economic progress were not promising for the United States. This was amid the ending of the hiring o census personnel which was followed by three months of job loss. The recovery of the United States economy from the current financial crisis will, thus, be moderate courtesy of the nature of contemporary economy that has a number of substantial shortcomings.
The recession, which peaked in 2008/2009, was as a result of a devastating increase of real estate and a serious financial crash that affected the real estate market leaving a good number of commercial and residential houses unoccupied for the most part of the financial crisis (Schiller, 2010, p. 51). It also resulted from the efforts by highly indebted consumers to get out from their debts. Banks also held back, or they were unable to give credit to customers even when some customers were willing to take it. The fund rate of the federal government is currently nearing zero and therefore not much can be done to achieve economic stimulation.
The situation is made worse by a number of factors that have largely widened the fiscal gap. One of those factors is the fact that about 78 million United States citizens who are employed fall under the baby boomers category (Amadeo, 2010, p. 1). This is to say that in a few years, hefty collections that potentially exceed the GDP on per-capita terms are about to be collected, virtually, at once. The value of the collections from Medicaid, medicare and Social Security is estimated at $ 4 trillion annually.
This is, more or less, equivalent to an enormous Ponzi scheme, run for six continuous decades. In this case, resources are sourced from the young and given to the people who have attained the legal age as the young are promised that when their turn comes, their payments will also be made (Schiller, 2010, p. 54). This has been one of the key contributors of the high levels of debt in the United States, together with other factors like the ease of credit access.
At its best, the United States recovery can be said to be U-shaped, with major similarities to the Japanese economy in the start of the 1990 decade. It is believed that the current United States economy will be, more or less, a reflection of “the lost decade”, a phrase used to describe Japanese economy in the 1990s. Thus the economy of the United States could stagnate for a long period of time with barely any growth.
The census Bureau compiled a report that showed a rise in the US 2009 poverty levels to 14.3%. This figure is the highest in a period of about fifteen years. It went up from a slightly lower percentage for 2008, which was 13.2% (Schiller, 2010, p. 37). It was also stated that 43.6 million American citizens were legally poor in 2009 with the threshold set at US$ 22,000 for a family of four, with kids. The median income for households in real terms was stated to be US$ 49,777 which was almost the same as the one for 2008 statistically (Schiller, 2010, p. 48). This high poverty rate can be attributed to the persistently increasing rate of unemployment during the year. According to the department of labor, the unemployed rose from 9 million to a staggering 14 million while the employed reduced from 145 million to about 140 million (Hung, 2010, p. 1).
Due to the situation of the United States economy and the ever increasing need to come up with remedial policies for reversing the economic situation, the United States government may be forced to use desperate measures in a bid to recover. One of aforementioned options that the U.S. government may resort to is substantially cutting the benefits that are to be paid to the baby boomers once they retire (Amadeo, 2010, p. 1). However, this may result to more problems than the United States is currently experiencing. The second option is an increase in the tax rates and tax bases by the U.S. government and the third is the printing of enough money to pay its bills.
From an economic point of view, the three options stated above will have equally destructive effects. Firstly, the cutting of the retirement benefits of the elderly will discourage the young generation from Social Security. This means that the whole system will be unable to sustain itself just like an unpopular Ponzi scheme and thus the government will not be able to pay its bills. Similarly, if the government opts to increase its taxation revenue, the American citizens will access more credit and thus the government will plunge deeper into debt. The last option of printing money will result in high inflationary rates that are bound to affect the economy adversely (Hung, 2010, p. 1).
As evidenced in the discussion above, the United States has been doing well economically but with a serious economic problem in its high levels of debt. This situation was worsened by the current depression that peaked in the year 2008 (Schiller, 2010, p. 64). Although then Obama government has been trying to overspend its way out of the debt, the situation is yet to change and more tactical economic interventions are required in order to change the situation. The U.S. government should thus come up with appropriate economic policies that will help to reverse the situation and avoid the possibility of economic downfall that the government is currently facing. The proposed action will be very instrumental in stabilizing the economy and also making it more balanced since the levels of debt are increasing each year at an alarming rate.
Reference List
Amadeo, K. (2010). Why the Fed Wants Higher Prices With QE2. Web.
Hung, J. (2010). The Grim State of the U.S. economy. Web.
Schiller, B. (2010).The Micro Economy Today. New York. McGraw-Hill.